Referendum seen having ‘little impact’ on markets

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In terms of economic implications, pundits see little impact from the outcome of Hungary’s referendum on the EU’s refugee quota plan, set for Sunday. However, while the government expects the referendum to send a “clear message to Brussels,” analysts see it as a very strong majority rejection of EU refugee settlement policy.

As far as the economic implications are concerned, analysts of Japanʼs Nomura said in a report sent to the Budapest Business Journal yesterday that the “more isolationist and domestically populist” policies of the current government have been accepted by the markets.

“Markets have learned how to cope with such behavior and views from Hungary with tighter fiscal [approaches], reduction of vulnerabilities and controlling monetary policy dominant as themes suppressing risk premiums in markets,” the analysis by Nomura says. “As such, we see little market impact from this referendum, though, as stated above, we think investors should consider this as part of a wider push towards the 2018 elections.”

The Hungarian government is holding a referendum on Sunday, in which participating Hungarian citizens can decide whether they agree or disagree with the European Commission’s plan to establish a quota system for settling refugees arriving on the continent. The question asks: “Do you want to allow the European Union to mandate the resettlement of non-Hungarian citizens in Hungary without the approval of Parliament?”  

Although governing party Fidesz has been strongly campaigning for a “No” answer to the question in the past months, opinions on the referendum have been divided. Opposition parties claim the question attacks EU policies, and fear that the referendum would be the first step to Hungary exiting the bloc, an idea that leading Fidesz politicians have rejected. Some opposition parties encourage supporters to stay away from the referendum, while others say Hungarians should vote “Yes.” Many NGOs, meanwhile, have raised the option of voting in an invalid manner, by putting an X in both the “Yes” and “No” boxes.

The Hungarian government has often repeated that the outcome of the referendum is important as it will “send a message” to Brussels, pointing out that its policies are heading in the wrong direction, and yet the result of the referendum will not be legally binding, professionals note.

‘Classic Orbanist populism’ 

Analysts at Nomura see the Sunday referendum as a “very strong majority rejecting the EU’s resettlement policy, whipped up by classic Orbanist populism,” according to an analysis published yesterday, which expects a low turnout. Nomura also sees a few new market implications as a possible outcome of the referendum.

Nomura analysts believe voters will not be voting on the implementation of any EU legislative proposal due to be adopted in Hungarian law, but will merely be responding to political tactics by the governing Fidesz. “Orbán is attempting to get ahead of the curve on this issue specifically, but also - probably more importantly for him - to be able to get more political momentum” ahead of national elections to be held in the second quarter of 2018, analysts say.

Based on public poll findings, Nomura sees the ratio of “No” votes in the referendum reaching around 80%, with a foreseen turnout of 48%-55% for the whole population eligible to vote. The referendum can only be valid if more than 50% of voters show up at voting booths. Pollsters remain highly unsure whether the referendum will be valid or not, though it is expected that the “No” camp will win.

“If Orban were to lose, we might think about scenarios of another referendum occurring, or possibly further political capital spent on loosening fiscal policy, public sector pay rises, etc., to get the momentum for the 2018 election in another way,” Nomura analysts note.

‘Clear message to Brussels’ 

Hungarian government spokesman Zoltán Kovács said this morning on state-owned M1 television and Kossuth radio that the outcome of the referendum will send a “clear message to Brussels.” Kovács said on TV that the message is that “if people do not want to accept something, politics cannot be built on that because it will generate more tensions than solutions.”

Kovács emphasized that Hungary has not granted rights to Brussels in connection with migration. The spokesman added that Brussels is planning to introduce a compulsory limitless distribution system “circumventing governments of member states,” while last year two decisions were made on voluntary settlement.

According to Kovács, the problem needs to be kept outside the borders of Europe, an idea Orbán himself has raised many times before, and help should be brought to places where it is needed. He said that a “significant ratio” of people arriving in Europe are not coming as refugees but “in hope of a better life.”

Kovács said that what Europe is facing at its borders today is “dangerous and must be stopped.” He added that if the eight-point quota package of Brussels were to be passed, a system would be established that leaves no room for member states to reject the central decision.

Fidesz parliamentary faction leader Lajos Kósa stressed that the referendum is about “defending Hungary,” according to a report by state news agency MTI.

Talking on state M1 television, the Fidesz politician stressed that the referendum is about Hungary’s own right to decide who can live with Hungarians, instead of letting “the EU’s never-elected bureaucrats” decide, MTI reported.

Kósa said that it was “stunning” that some estimates say 2,000-6,000 terrorists have arrived on the continent with the “migrant flow.”

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